Endologix Inc. Chief Executive John Onopchenko is facing a Wall Street skeptical about the company’s future.
In a statement issued last week, Endologix said it projects this year’s revenue of “at least $140 million.”
That’s a 10% decline from the preliminary $155.8 million in revenue it expects to report for 2018.
The Irvine-based company (Nasdaq: ELGX) reported total cash, cash equivalents and restricted cash of about $24 million. That’s down from $42.4 million on Sept. 30 and $60.6 million a year ago.
Since June when it reached a 52-week high of $6.72, shares of the maker of products for minimally invasive procedures for aortic disorders have plunged 90%, particularly after the company slashed its 2018 financial outlook in August.
The shares traded around 66 cents and a $65 million market cap as of press time last week. Shares took another dip earlier this month after it announced it was halting unrestricted sales for one of its products.
It’s a far cry from 2013 when the company was valued at more than a billion dollars. Not a single analyst that Nasdaq.com lists as following Endologix recommends buying the company’s shares, while seven call it a hold and one recommends selling.
Neither Onopchenko nor company representatives returned emails or a phone call seeking comment.
The chief executive in a third-quarter press release acknowledged the loss of faith by customers and Wall Street.
“While there is still significant work to be done, our third-quarter results reflect the company’s commitment to realizing the full potential of our recently announced strategic plan, with the ultimate goal of restoring credibility with customers and building value for stockholders,” Onopchenko said in the statement.
Restructuring Focus
Onopchenko has worked as an executive in the medical device industry for almost 30 years, including as executive vice president for Acutus Medical Inc., which makes devices to treat patients with complex cardiac arrhythmias, and Johnson & Johnson, where he led medical device investments.
Endologix hired him as chief operating officer in 2017 and then promoted him last May to chief executive, taking over for John McDermott, who left after 10 years on the job.
Onopchenko spent the remainder of last year restructuring the company with a variety of actions, such as cutting expenses and stabilizing its sales force, which was 675 in 2017.
He hired a new chief operations officer, Jeffrey Brown, whose resume includes Johnson & Johnson and Boston Scientific Corp.
Onopchenko made quality control a priority, naming Jeff Fecho as chief quality officer. Fecho previously was division vice president of operations and new product quality at Abbott Laboratories (NYSE: ABT) and vice president of global quality at St. Jude Medical Inc.
Last year’s biggest share decline occurred after its second-quarter report issued in August, when Endologix cut its revenue forecast, citing “significant changes to its strategy.”
“Looking at the remainder of this year and beyond, we are taking meaningful and necessary steps to reset our operational, clinical, and financial priorities in order to position the company for long-term success,” Onopchenko said in that report. “Collectively, these initiatives would improve our competitiveness and lower our cost-to-serve.”
The company in October issued 17.6 million shares, priced at $1.13 each, to raise about $20 million. It said the offering was to redeem all of its $18.3 million, 2.25% convertible senior notes due 2018 and pay related costs.
The company reported $189 million in debt as of Sept. 30.
In the past 18 years, the company has reported only one annual profit—in 2010.
Aorta Stents
Founded in 1992, Endologix develops a variety of endovascular stent grafts for the minimally invasive treatment of abdominal aortic aneurysm, or a weakening of the wall of the aorta, the largest artery in the body.
Such weakening can result in the enlargement or outward ballooning of this part of the artery, leading to tear or leakage within the wall of the blood vessel.
Its technology enables surgeons to accesses the aorta through a small incision in the groin as opposed to open surgery. It has 108 patents.
In 2016, the company announced a voluntary recall of its AFX Strata product line because of reports of situations where blood continued to flow in the aneurysm, thereby increasing the risk of a rupture.
Last October, it issued another voluntary recall of its AFX product line.
Earlier this month, it announced the immediate halt to unrestricted sales of its Nellix System, which was developed as an alternative treatment to traditional endovascular aneurysm repair.
The product “will only be available for use under clinical protocol with pre-screened patients that adhere to the current indications,” according to a statement it issued on Jan. 4.
“Ensuring patient safety and optimal clinical outcome is our top priority,” Onopchenko said in the statement.
The company’s latest decision to stop sales of Nellix wasn’t material to the company, BTIG LLC analyst Sean Lavin wrote in a note to investors, adding that the recall and field safety notices were “probably overly aggressive and very cautious.”
“We do not expect it to meaningfully impact revenue, and we expect it will preserve the long-term potential for Nellix’s US approval, launch and adoption,” he maintained.
Endologix received CE mark approval—Europe’s version of the U.S.’s Food and Drug Administration approval—for Nellix last month.
Close to the Chest
This year, the company is also seeking European and U.S. Food and Administration approval for its next-generation stent Ovation Alto Abdominal Stent Graft System. The company told investors that Ovation Alto is expected to be a meaningful revenue driver.
The company has generally kept product launch details close to the chest.
BMO Capital Markets analyst Joanne Wuensch wrote that the 2019 revenue guidance of $140 million is “a floor” that doesn’t include the potential upside from its emerging sales strategy or new products.
“On the expense side, management has done an admirable job of streamlining operations [and] post-restructuring the sales force does appear stable,” Wuensch wrote.
BMO still rates shares of Endologix “market perform,” citing a number of risks like competition, regulatory approval and debt.
